Question - Activity-Based Costing for Customers

Marvin's Kitchen Supply delivers  restaurant supplies throughout the city. The firm adds 10 percent to the cost of the supplies to cover the delivery cost. The delivery fee is meant to cover the cost of delivery. A consultant has analyzed the delivery service using activity-based costing methods and identified four activities. Data on these activities follow:

                                                                                                   Cost Driver Volume

Activity                                       Cost of Driver                       Cost                       Driver Volume

Processing order                          Number of orders                 $50,000           5,000 Orders

Loading Truck                              Number of items                  100,000            100,000 Items

Delivering merchandise                Number of orders                 60,000             5,000 orders

Processing invoice                       Number of invoices               48,000             4,000 invoices

                Total Overhead                                                      $258,000

Two of Marvin's customers are City Diner and Le Chien Chaud. Data for orders and delivers to these two customers follow:

                                        City Diner              Le Chien Chaud

Order Values                     $50,000                   $60,000

Number of orders                52                           110

Number of items                600                           1,500

Number of invoices             12                            150

What would the delivery charge for each customer be under the current policy of 10 percent of order value?

What would the activity-based costing system estimate as the cost of delivering to each customer?

How could Marvin's use the information identified by the new costing method to manage costs?